General Question

gorillapaws's avatar

Any book recommendations for learning more than just the basics of investing?

Asked by gorillapaws (25357points) May 21st, 2008

I was interested in finding a book that has good solid information on analizying stock performances based on the various indicators and such. I don’t want to “get rich quick” or “learn the secret that every trader wishes they knew.” I just want to learn how to interpret the various indicators to be able to determine the various risks and potential rewards of various investments.

It’s remarkably hard to find this kind of information without being sold some kind of scam or another. Any recomendations for a reputable/trustworthy source for teaching myself this stuff? I did very well in my macroeconomics class many years back and I have a solid grasp of basic finance fundamentals and would like to read something that goes beyond the basics of what bonds are and how mutual funds work etc.

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14 Answers

mdy's avatar

Several friends have recommended The Intelligent Investor by Ben Graham.

I’ve not read it myself, though.

Trustinglife's avatar

I read You Have More Than You Think: The Motley Fool Guide to Investing What You Have

I like their irrevent “Foolish” style, as they call it, and it was decent education.

jlm11f's avatar

I like Jim Cramer for investing tips and guides. His show on CNBC (Mad Money – http://www.cramers-mad-money.com/) is always fun to watch in the evenings (around 6 pm?) I haven’t read any of his books but I have been meaning to. He is a smart guy and is entertaining/crazy so I am sure his books won’t be boring. I think he has about 6 books out. The one that sounds best for your question is “Cramer’s Real Money: Sane Investing in an Insane World” . Let me know if you end up reading anything by him!

gailcalled's avatar

And who is getting rich? The Motley Fools and Jim Cramer and Suzi Ormand….

Trustinglife's avatar

By helping others… anything wrong with that?

xyzzy's avatar

@trustinglife. look up the phrase “pump monkey” as applied to financial analysts.

joeysefika's avatar

Rich Dad, Poor Dad
Great book on investing and everything else

anonyjelly16's avatar

“A Random Walk Down Wall Street”

gorillapaws's avatar

Thanks for all of the replies. I was hoping to find suggestions that were more like textbooks than best-sellers. “The Intelligent Investor” and “A Random Walk Down Wall Street” are apparently classics and I will have to check them out. From the little research I have done on the subject, it seems like there is still so much disagreement within the field, even by the academics on some of the most fundamental questions of financial theory. This stuff seems like it could be empirically tested, so why don’t we have better answers to these questions? Technical analysis seems like a load of crap, but I’m a bit more curious about looking into fundamental analysis. Any thoughts on that particular perspective?

gailcalled's avatar

Check out the richest folks and see how they made their money. Start with the smartest investor in the world, Warren Buffet.

gorillapaws's avatar

I ended up getting this book as a starting place for evaluating the fundamentals of a company. I guess the theory goes that sometimes the market over/under-prices stocks relative to their “true value.” Their true value can be calculated (with a significant margin of error due to many uncertainties) and that eventually the price will change to reflect the “true value” of the stock. So if one can identify which stocks seem to be under/over-valued by the market, you have the opportunity to profit from that knowledge, assuming that the stock price will later correct (and that something unexpected doesn’t happen to radically alter the price before it gets the chance to do so).

I’m under the impression that Warren Buffet uses this type of method. The different methods for calculating what a stock should be worth varies significantly though, and I’m not sure exactly what methods Warren Buffet uses, but I’m pretty sure that this Damodaran guy is one of the leading experts in the field of valuation. It says that the book presents a variety of methods for valuation, so I’m hoping I can read through and find a method that makes sense to me/I can’t find major logical errors in and try to put it into action.

I’m still fairly young as far as investing goes, so I have the luxury of time to allow me to make and learn from any mistakes early on. Besides, I’m looking to do this mostly for fun, and to hopefully learn a new skill. Also, in a way, learning investment strategies when we’re in a bear market may be a healthier way to go about doing it since you will always have that reality-check going on. I can see how if you learned how to invest when you’re in a big upswing, many of your investing decisions will yield big returns, but you might not be learning to manage risk, especially if you just happen to be kind of lucky. I could see how one could fool themselves into thinking they’re much better at picking securities than they truly are and run into big problems later on because of their over-confidence. That’s me looking on the bright side I guess :P

gailcalled's avatar

Good luck. For another approach, check out The Lazy Portfolios,

Note that the second grader’s choice of three funds had a slightly higher yield than that of Yale U.‘s endowment, managed by pros. Over five years, the yields were statistically tied. That should tell you something.

You might want to start with a fantasy portfolio; buy and sell on paper for 12 months and see how you do. Factor in brokerage (or on-line fees) and capital gains or losses.

Or consider how much you can afford to lose; pretend that you are going to Las Vegas with a limit.

gorillapaws's avatar

@atharkhan

So I bought “A random walk down wall street as well. I’m about 50% of the way through it, and it’s a fantastic book thus far. I’ve always been very skeptical of people claiming they know the secret to beating the market, and it was very nice to read a book telling me that there is no easy way. I think anyone invested in the market should read this one, even if they don’t agree completely with what it says.

The author gives fundamental analysis a pretty big beating, and has somewhat tempered my enthusiasm for that particular strategy. Moreover the claim is that Wall Street analysis’s have not been able to justify the expense of their commissions. Essentially, their picks tend to do no better than index funds when you factor in the additional expense of commissions and management fees. However, he does not argue with the basic premises of fundamental analysis theory (more so with it’s lack of results), so it does seem like a viable technique provided one is good at it as well as they aren’t paying a premium for someone else to do it for them. Also, he mentions that it seems that analysis may be more effective with smaller stocks since they have fewer eyes on them and that the market is likely less efficient with these stocks than with blue chips.

Based upon these assumptions, I am going with the following strategy. I’m going to pursue the author’s recommended diversified portfolio strategy, however, I’m going to use fundamental analysis to try to select securities I think have good value when picking my diversified portfolio. I plan to buy and hold, however if any given security seems to be greatly over-valued, I will sell it, and find a different one that seems to have a better value while fulfilling the diversification role of the previous stock.

If I can adhere to this strategy, I think I stand to benefit from the author’s advice, as well as having the possibility of generating a modest improvement on that performance through hard work and analysis. In a Pascal’s wagerish way I win either way. Either, I can’t beat the market and I get the same return as everyone else while managing my risk through the recommended portfolio diversification techniques. But if I can pick stocks that perform better than the market, I will still remain diversified as suggested, but I stand to achieve a modest profit from the hard work of analyzing securities. In the worst-case scenario, I will have only wasted my time and energy conducting fundamental analysis without it adding anything to my bottom line and learned something from the process.

Once I finish this book, I’m going to proceed to the Damodaran book on valuation techniques. I’ll keep you guys posted on my progress. In the meantime, I’m playing on investopedia.com’s stock simulator game with fake money to see how I do. While I continue to save up, I’ll use this as a litmus test to see how well I can do before “playing for keeps.” I’ve been fluxing between -0.5% and 1% over the past couple weeks although I’ve remained in the green since last week. Thanks again for everyone’s advice.

gailcalled's avatar

Don’t forget to factor in buying and selling fees, if you are doing that, and the (surprise!) end-of-the-year) capital gains on funds, whether they have a positive yield on not. The managers of, say, a NY long-term tax free muni-bond fund trade bonds are trading bonds. At year’s end, they use cost-averaging to get you.

I like that idea of stock simulator and fake money. Let us know when you get rich, or richer.

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